$700 Gold?

“In another two years, will gold and silver values return to 2012 values or $700 for gold like Harry Dent predicts? Appears bleak. What is your counter to that?

“Thank you.

“Bill”

Here’s my “counter”.

First, consider the following chart of gold prices from A.D. 2000 to today in A.D. 2014:

Gold Price A.D. 2000-2014

The red line charts the actual price changes for gold.

Whatta Rush!

The yellow trend line “A” approximates the rising price of gold from A.D. 2001 (when the price was $280) though the peak price ($1900) in October, A.D. 2011. During this spectacular bull market, the price of gold rose 600% in ten years. If you owned gold, you were a very happy and excited camper.

Whatta Wreck!

The yellow trend line “B” approximates gold’s price decline from the October, A.D. 2011 peak ($1900) to a low of $1,180 in June of A.D. 2013–a mind-boggling fall of 38% in 20 months. It’s unclear whether this period of price decline marked the end of the former bull market (trend line “A“) and the onset of a new bear market–or if the decline seen at “B” was merely a severe “correction“.

If the trend line “B” marked the end for the previous bull market and beginning of a new bear market, the price of gold might yet fall to, say, $600.

However, if the trend line “B” was merely a “correction,” the previous bull market trend seen in “A” is still in force and the price of gold can be expected to soon rise much higher.

Whatta Puzzlement!

Yellow trend line “C” runs “sideways” during over the most recent 15 months from June, A.D. 2013 to today. During that 15 months, the average price for gold has been roughly $1,225.

We don’t know how long the “sideways” trend line “C” can continue. We don’t know if or when the “sideways” “C” trend will give way to a new upward or new downward trend.

But we can reasonably infer that the “sideways” direction of the 15-month “C” trend line has probably terminated the downward trend seen in line “B“. If so, it seems likely that down-trend line “B” was only a “correction” and the fundamentals favoring the bull market first seen in trend line “A” are still in force and likely to push the price of gold much higher.

Based on the available information . . . .

Given the information seen on the chart, I’d guesstimate that there’s at least a 70% probability that the previous downtrend in the price of gold (trend line “B“) is ended and gold will continue to move “sideways” until a new uptrend (similar to trend line “A“) begins.

However, although the chart may be interesting and even persuasive, it doesn’t prove anything.

If we want to increase the probability that our predictions for gold’s future are accurate, we need to consider a few more questions and look deeper into some “fundamentals”.

Questions, questions

Most of us who’d invested in gold prior to its $1900 peak expected its price to continue rising to even more spectacular levels.

We were wrong. As you can see from the trend line “B” in the chart, in the three years since that $1,900 peak, gold has done spectacularly poorly, falling back to as little as $1,180 and losing 38% of its peak price in less than two years (trend line “B”).

Some of us who’d invested in gold prior to the $1,900 peak are shocked and confused. How is it even possible for gold to have lost over one-third of its peak value? Many of us are are discouraged.

For all of us, the big questions are these: Will the price of gold return to the A.D. 2000-2011 trend line “A” (600% up over 11 years)–or will gold continue in the recent 20 month downward trend (“B“) of 38% down? Is the 20-month downtrend “B” just a “correction” in a major bull market that started in A..D. 2000? Or did the 20-month downtrend “B” mark the onset of a new, long-term bear market?

I can’t give you prophecy, so I can’t answer those questions in a way you can rely on.

Fundamentals

However, I can list some facts and implications that I regard as true and “fundamental”. From these “fundamentals” you may be able to draw your own conclusion about gold’s future prices:

1. Fact: Gold has been recognized as “money” for most of 5,000 years. No other currency comes close to that record. Implication: Gold will continue to be recognized and valued as money for some considerable time into the future.

2. Fact: Over the last several centuries, governments have tried to install fiat currencies at least 275 times. With the exception of a few, recent fiat currencies that have not yet failed, all fiat currencies have failed. Implication: All fiat currencies fail.

3. Fact: 43 years ago (A.D. 1971), when President Nixon closed the “gold window” and stopped redeeming foreign-held dollars with gold, the US dollar lost its last vestiges of intrinsic value and became a pure fiat currency.

4. Fact: In the 43 years since the dollar became a pure fiat currency, its value (purchasing power) has fallen by 97%. Implication: Given that the fiat dollar lost 97% of its value in the past 43 years (that’s an average loss of over 2% per year), if that trend continues, the fiat dollar should lose virtually all of its remaining purchasing power within the next two or three years.

5. Fact: As the remaining value of the fiat dollar falls, the prices of other commodities like food, energy and precious metals should rise.

Conclusion:

Assuming that items 1 through 4 (supra) are true, it seems reasonable–and perhaps inevitably true—that, after losing 97% of its value, the fiat, paper dollar is destined to also lose the last 3% of its remaining value within the next two or three years. This loss might be drawn out and delayed, or it might substantially occur at any moment.

As the dollar loses another 1%, then 2% and finally 3% of its original value, the prices for gold and silver denominated in fiat dollars may not only rise, but rise exponentially.

There may be some “bumps” along the way which cause the prices of gold and silver to fall to temporary and irrational lows of the sort predicted by Harry Dent. But ultimate result seems certain: fiat dollars are going to die and cause the price and even value of gold to rise.

Big time.

$700 Gold?

As for Harry Dent’s prediction that the price of gold will fall to $700, I don’t believe it for one minute.

Nevertheless, I hope he’s right because all that means to me is another extraordinary opportunity to buy gold at an irrationally “low” price before it inevitably rises to a spectacular “high” price.

Gold is going up. Inevitably. Way up.

Why?

Because the fiat dollar is going down. Inevitably. Way down.

How high and how soon gold skyrockets remains to be seen—but it’s likely to happen in the near future.

The future may be “bleak” for the US economy.

It may be “bleak” for the US dollar.

But the future for gold is shiny and bright.

What will the price of gold be in two more years?

Can’t say. Don’t know. But it’s more likely to gain 100% and rise to $2,500 than to lose 40% and sink to $700.

In the unlikely event that gold doesn’t hit $2,500 by A.D. 2016, it’ll do so (and a lot more) soon enough.

Related

25 responses to “$700 Gold?”

Toland

October 18, 2014 at 5:18 AM

It is profitable to compare Al’s gold price chart to the history of the Fed’s QE program. The bare minimum of due diligence requires a potential investor to be informed of this fundamental relationship.

Note how gold’s rise from about $800 in 2008, to a plateau over $1,600 in 2011 and 2012, closely tracked what the Fed was doing in the way of QE1, QE2, etc. at the same time. Then, when the Fed moderated its inflationary stance, gold changed direction too.

An apparent exception to this correlation happened in late 2012, when the Fed almost doubled its QE bond buying, yet gold did not rise in response. However, this can be attributed to the campaign of “tapering” talk the Fed was already engaged in.

So yeah, Al is correct to imply that the price of gold is closely linked to monetary policy. Even the slightest signal from the Fed has an effect.

There’s a chart trading rule called the 50% rule which says a rally will retrace 50% (more or less) of it’s recent advancement. 50% in this gold move would be 810…700 would not be out of line.

My involvement with this rally has been since ’03. Specific Fed policy has nothing to do with this rally. It’s the general USD loss of value and trust and nowhere else to run to. Astute traders comprehend that the Fed may talk a good game, but is powerless.

The most conspicuous example of this “Fed factor” is where the main blastoff in the price of gold began in late 2008 (see the chart). This is right when the first QE started.

Thus, in case it’s not already obvious, now we know that doing your own homework (rather than merely following one of the dime-a-dozen investment gurus with an undisclosed conflict of interest) requires the “Fed factor” in calculations of your financial future.

On a side note, I see that some commenters can post images in their comments. That would be useful for a topic like this.

LMYIAO…”Fed factor”…you young’uns don’t make a living with chart trading, do you?

Toland

October 18, 2014 at 3:18 PM

@Henry > The most conspicuous example of this “Fed factor” is where the main blastoff in the price of gold began in late 2008 (see the chart).

Yeah, and while you’re at it, notice that your big run-up in gold ended when the Fed started telegraphing its new “tapering” policy – meanwhile all the other variables that could have stopped gold’s bull run remained unchanged. The reason for this is self-evident when you consider Al’s correct observation concerning the fundamental relationship between the price of gold and monetary policy.

Not that the Fed is the only variable determining what gold will do on day-to-day basis, but the Fed is THE factor in the monetary policy which fundamentally moves the price of gold year-to-year. So yeah, only a recklessly irresponsible (with YOUR future) charlatan hack would fail to consider the Fed when advising you financially (while of course using plenty of weasel words to avoid actually promising you anything).

moon

October 18, 2014 at 7:42 PM

LMYIAO

Henry

October 18, 2014 at 8:39 PM

Lol, well of course.

Them charlatan hacks is always ready to do a fancy dance to get yo money, but don’t look for any guarantees after you give it up. What do you think this is, a marriage? It’s more like a one-night stand.

Henry, if you traded as you talk on this blog, you’d be broke. So, what could you possibly know about risk?

Toland

October 18, 2014 at 11:53 PM

Henry, wait a minute though! Just because the charlatan hacks leave you to your own devices after the sales encounter, that doesn’t mean you’re meaningless to them now. I mean, at least you’ll still find the occasional spam email from them in your inbox. So it’s not like they forget about you entirely.

Henry

October 19, 2014 at 12:03 AM

Lol.

moon

October 19, 2014 at 8:55 AM

Ah, yes…you do trade as you talk and you are broke. That’s where your frustration is coming from. Hmmmmm…

palani

October 18, 2014 at 8:11 AM

Notice the similarity between gold prices in Alfred’s chart and the price of crude oil. Gold started at $300 and ended up around $1,500 or a 5x increase. Oil started at $20 and ended up at roughly $100 .. again a 5x increase.

Prices are now synthetic and manipulated. A massive amount of “money” is being spent on things like naked short shelling of precious metals to manipulate the thinking of people participating in the “markets.” Perhaps some of the actors participating in this manipulation think that they have godlike powers over the minds of men.

No doubt some manipulation is taking place, but it’s hard to move big markets like this for too long. I think the price is telegraphing deflation ahead. Which would fit the historical pattern: long credit based run up, short sharp deflation period, then hyper inflationary blowoff end. Then total system fail and reset.

I love you Al, and totally respect you, but I think you’re a little out of your wheelhouse on the financial technical analysis front.

I used a chart in this article, but I don’t believe they count for much so long as the game is rigged and the numbers are manufactured. If we had a free markets, charts would be helpful to predict the future price moves. So long as we live with manipulated markets, charts record history, but offer no reliable prediction of the future.

I don’t buy, own or recommend gold because I’m in love with the stuff. I buy, own and recommend gold as a way to get out of, and get away from, the fiat dollar which is inevitably doomed. Gold is not the “place to be,” per se. Fiat dollars are the place not to be.

Well we certainly agree on that. I personally know and work with two multi millionaires. They both buy lots of gold, real estate and art. And only a bit of stocks and bonds. Tangible stuff that can’t go to zero…

Charts are a record of the price history of a stock, bond,or commodity. Charts show trends that have occurred. If one believes that all trends have beginnings and endings.Understanding chart patterns and pattern recognition sometimes provides to the learned profitable entry and exit points indicating cyclical peaks and troughs. The S and P index is most defineitly at a peak the end of a 32 year bull market. T he chart does indicate this is and was a powerfull bull market. tHE silver and gold charts do indicate that these markets are in the early stages of a powerful secular move, beginnings and endings, Precious have been troughing here, and invisible. Remember early stage bull markets are invisible to the thundering herd, on the other hand the S and P is the recipient of the thundering herds’ capital, still.

Al explains exellent fundamental reasons and analysis to tie in with price discovery with the use of charts. Fundamental and technical anaysis complement one another. They both indicate that we are at a precipice of something of paradigm and of powerful dimensions unfolding now!

I will be honest, I don’t know what any of this means. I am an idiot. How the money in my pocket lost 97% purchasing power makes no sense to me.
A hundred years ago I doubt anyone dreamed of owning a car and travel 80 MPH. Now even if you buy a junker for a grand you can travel 80 MPH.
Even if you bitch about paying taxes. The goons taking our hard earned pay designed it so we can get our tax money back every 10 years by discharging our debt. Heck, you don’t even have to wait 10 years. Credit cards can be discharged easily. It’s their system they designed.
All this talk is about their system. We can bitch all day long about losing 97% purchasing power, however, I don’t see how that means anything. My grandparents born in the late 1800’s had everything I have. Cars, houses, food, clothing. I have everything they had and more and can even give myself a raise by discharging my debt, Which I never have done. I am just saying you can, its simple and its their law for us to use.
Just say n…

The loss of purchasing power for the dollar doesn’t mean much IF 1) your wages are rising as fast as the prices of food, energy and other products; and 2) you are living hand to mouth and spending your wages just as fast as they come in the door.

However, if you are trying to save any of the wealth you’ve earned, the loss of purchasing power caused by inflation can be ruinous.

Imagine that your grandfather set up a trust for you back in A.D. 1970 and endowed that trust with, say, $250,000. Let’s say he qualified his trust by saying that the beneficiary (you) couldn’t lay hands on the principal ($250,000) until A.D. 2015.

The median price for homes in the USA was about $25,000 in A.D. 1970. Today, the median price for homes is about $220,000.

Your grandfather left you enough wealth to have purchased about 10 homes (1 for you to live in and 9 to rent) back in A.D. 1970. By not having to pay rent or a mortgage on your own home, and by receiving income from your nine rentals, the $250,000 your grandfather deposited into that trust might’ve been enough to allow you to be independently wealthy and never have to work for someone else for the balance of your life.

But–thanks to inflation (which ate up 97% of the purchasing power of the $250,000 that your grandfather had saved for you), when you access the funds in the trust next year, you’ll only have enough wealth to purchase one home plus enough cash left over to live for one year without working.

Grandpa deposited $250,000 into the trust in A.D. 1970. You’ll receive $250,000 in A.D. 2015. But–thanks to inflation–the $250,000 that might’ve bought 10 homes in A.D. 1970 will only buy one home in A.D. 2015. You received the same nominal amount of cash ($250,000) as your grandfather deposited, but only 10% as many tangible homes.

In this hypothetical example, inflation robbed you (and your grandfather) of over 90% of the real wealth (purchasing power) that he’d placed in trust for you. Only 10% of the money your grandfather struggled to earn and save would reach his intended beneficiary: you. 90% (or more) of grandpa’s wealth (savings) would be wiped out by inflation.

“Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the government of these United States and the people of the United States out of enough money to pay the Nation’s debt. The depredations and iniquities of the Fed has cost this country enough money to pay the National debt several times over. These twelve private credit monopolies were deceitfully and disloyally foisted upon this country by the bankers who came here from Europe and repaid us our hospitality by undermining our American institutions.” – Congressman Louis T. McFadden, Chairman of the House Banking Committee, 1934

And the undermining continues to this day by the same bankers, their lackeys in government, and the clone army of little helpers who run interference for them in the press.